European airports at a crossroads

AER Meeting Brussels, 11 June, 2010

OVERVIEW

ACI EUROPE

SETTING THE SCENE: THE GLOBAL CRISIS

EVOLVING BUSINESS MODELS

KEY CHALLENGES

THE VOICE OF EUROPE’S AIRPORTS

2009 PASSENGER TRAFFIC: -5.9%

2009 FREIGHT TRAFFIC: -13.1%

86% LOST PAX TRAFFIC IN 2009

UNPRECEDENTED IMPACT

-100 MILLION PAX = DOUBLE WHAMMY ON REVENUES

- Declining aeronautical revenues

- Declining commercial revenues

INCREASING CAPITAL COSTS

- Access to capital markets difficult/costly

- Credit rating downgrades: BAA, Amsterdam, Dublin, Brussels…

DETERIORATION IN FINANCIAL PERFORMANCE

- EBIT (H1 ’09): up to -97% (top 25 European airports)- Closure of Coventry airport

INCREASING AIRLINE PRESSURE (charges)

TIGHTENING THE BELT COST CUTTING

– Staff reductions: Amsterdam-Schiphol -25%, Dublin -20%, Manchester -5%, SEA Milan -30%, Glasgow-Prestwick – 20%, …

– Capital investments: -€2.8 billion

MOST CAPITAL INVESTMENTS CONFIRMED: €50 billion

– Long lead times in airport development

– Be ready for the rebound = air traffic to double by 2030

– Industry funded stimulus package

CHARGES = RESPONSIVE IN THE CRISIS

DIFFERENTIATED IMPACT

MOST SEVERELY AFFECTED MARKETS

– Spain, UK, Poland, Baltic countries…

MAJOR HUBS: RESILIENCE -4.7%

– Transfer traffic

– Diversified portfolio of airline customers

SECONDARY HUBS: MORE AFFECTED -6.1%

– Weakness of dominant carrier (SAS, Aer Lingus, Austrian Airlines, Alitalia, LOT…)

REGIONALS: MANY LOSERS, SOME WINNERS -5.4%

– Down up to -60% at some airports

– Dependence on a single carrier

– Growth at some locations to the detriment of others

VOLCANIC ASH CRISIS

OVERVIEW Up to 80% of airspace closed+100,000 flights cancelled

+10 mil pax unable to travel

AIRPORTS +17 mil pax lost+€300m lost revenue€10m assistance costMost Fixed/variable cost unchanged

AIRLINES +€1.3 bil lost revenues€200m assistance costs (AEA)Fuel costs savings

NEW MARKET STRUCTURE

INCREASED DOMINANCE OF LOW-COST MODELS

- Growing market share: +50% in 2013!

- Increasing relevance to business travelers

- Challenge to Hub&Spoke model

- More pressure on charges expected

AIRLINE CONSOLIDATION

DOMINANT PARTY IN AIRPORT-AIRLINE RELATIONSHIP

IMPACT ON AIRLINES

NETWORK CARRIERS (AEA)

– Passenger traffic 2009: -6.3%

– Premium Passenger Traffic: -18.5% (Jan-Nov)… … starting recovery in Q4

– EBIT: Estimated loss of €3.5 billion

– Cost cutting priority: -9% staff

– Strategic repositioning & product redefinition (short-haul)

CONTINUED PERFORMANCE IN THE LOW-COST SEGMENT

– Bankruptcy of smaller players (Sterling, Sky Europe)

– Majors still expanding (Ryanair: +13% pax in 2009)

– Increasing relevance for business travelers

BUSINESS TRANSFORMATION

Times Past

Mere infrastructure provider

Securing needs of a flag carrier

Exclusive public ownership

Dependent upon public financing

Today

Fully fledged businesses with diversified activities

Serving a wide range of customers with different needs

Corporatisation is a mustPrivatisation

Self-financing

INCREASING AIRPORT COMPETITION

KEY STRATEGIC DIRECTIONS

DIFFERENTIATE FACILITIES & SERVICES- LCCs /Alliances… Just like airlines!

REDUCE DOMINANT AIRLINE DEPENDENCE- Legacy carrier or LCC

COMPETITIVE AIRPORT CHARGES: A “MUST” - 3.5% of airline costs (ICAO)

- Airline-related charges: 22% of total airport revenues

DEVELOP NEW REVENUE STREAMS- Commercial Developments

- 47% of total airport revenues

GROW INTERNATIONALLY & AIRPORT ALLIANCES

- Fraport, AdP, Zurich, Schiphol

- AdP & Schiphol, SEA Milan & ADR, …

CAPACITY & FINANCING

SECURITY

ENVIRONMENT & CLIMATE CHANGE

KEY CHALLENGES

CONNECTIVITY

AIRPORT CAPACITY CHALLENGE

THE CRUNCH – traffic will double by 2030!

- 41% capacity increase (5 new airports & 79 new runways)…

… BUT 11% of demand still not accommodated!

- 19 Heathrow-style congested airports!

- Unprecedented congestion levels!

- Far reaching impact: SES2, environmental efficiency, economic development & competitiveness…

FINANCING ISSUE

- Less airline-centric & More passenger focused economic regulation

- Incentivise airports to finance infrastructure development

POLITICAL ISSUE

- EU priority & national support (alignment with SES…)

- Increasing environmental pressure

- Aviation’s license to operate & grow at risk!

ENVIRONMENTAL CHALLENGE REGULATORS & INDUSTRY TAKING ACTION…

– ETS = ICAO leadership needed for global system!

– SES implementation + Clean Sky funding

– Airlines’ firm commitment (IATA AGM June 2009)

– Airport Carbon Accreditation (ACI EUROPE GA June 2009)

…BUT CLEARER POLICY DIRECTION NEEDED

1. RECONCILE growth & environmental objectives

2. PRIORITISE environmental objectives

3. ADDRESS energy supply issues… prioritise!

CONNECTIVITY CHALLENGE

AVIATION = REAL WORLDWIDE WEB

- Improved air transport links key to economic benefits

- BUT outdated & unfit regulatory framework

BENEFITS OF TOTAL LIBERALISATION - Free market access, ownership & control, non-

discrimination

- Intra-EU liberalisation

+ 170% increase in air routes!

1000 new city pairs (2003-2007)!

MOVING FORWARD… QUICKLY!

- Pan-Mediterranean & European Aviation Area58 States / 2010

- BRICs (Brazil, Russia, India, China)- EU/Latin America Aviation Summit May 2010

THE SECURITY CHALLENGE

9/11, LAGs, SUICIDE BOMBERS = MASSIVE IMPACT!

- Costs: 35% of airport operating costs; 41% of airport staff

- New technology: + €1 bn LAGs, + €1 bn body scanners…

ONE-STOP SECURITY - EU & Pan Euro… including public financing for national measures!

- Globally

« THE AIRPORT OF THE FUTURE » by 2020

- Seamless & Integrated Processes

- Risk-Based Approach Deterrence over Detection, Probable over Possible

- Automated Screening & Border control Body scanners Biometric standards

www.aci-europe.org

www.airportcarbonaccreditation.org